Aetna’s $37 billion purchase of Humana enjoined

The Department of Justice Antitrust Division has convinced the federal district court in Washington, D.C. to block Aetna Inc.’s $37 billion attempt to buy Humana Inc. The court concluded that the transaction would likely substantially lessen competition in the market for individual Medicare Advantage plans in all 364 counties identified in the government’s complaint. Moreover, the deal was likely to substantially lessen competition on the public exchanges in three Florida counties in which Aetna was likely to offer plans on the exchanges in 2018 and beyond. Efficiencies arguments raised by the merging parties were rejected (U.S. v. Aetna, Inc., January 23, 2017, Bates, J.).

The Aetna-Humana deal was one of two proposed mergers in the health insurance industry challenged by the Antitrust Division in July 2016. The government contended that the two transactions—the other involving Anthem’s acquisition of Cigna—would reduce the country's "big five" health insurers to three. A decision on whether Anthem can proceed with its proposed $54 billion acquisition of Cigna, which would be the largest merger in the history of the health-insurance industry, is expected soon. Today’s decision follows a 13-day trial in December 2016.

Medicare Advantage product market. The primary focus of the complaint against Aetna and Humana was the proposed transaction's impact on the Medicare Advantage product market. The court held that the proposed deal was presumptively unlawful in that market. The Department of Justice, joined by eight states and the District of Columbia, alleged that the effect of the transaction "may be to substantially lessen competition" the market for individual Medicare Advantage plans in 364 counties across 21 states.

The court rejected the defendants’ efforts to expand the market definition to include both Original Medicare (Medicare benefits offered directly by the government) as well as Medicare Advantage (Medicare benefits offered by private insurance entities). Medicare Advantage plans compete with Original Medicare to a certain extent, the court pointed out. However, "Aetna’s and Humana’s focus on competition within Medicare Advantage, along with seniors’ observed strong tendency to switch from one Medicare Advantage plan to another when faced with a plan cancellation or price increase, make it unlikely that competition from Original Medicare options will suffice to discipline Medicare Advantage pricing that Aetna and Humana focused on competition with other Medicare Advantage organizations," the court held.

Competitive effects. Based on market concentration figures, the government was entitled to a presumption that the merger would substantially lessen competition in the sale of individual Medicare Advantage plans in all 364 complaint counties. Among other things, the court pointed out that in 70 counties where Aetna and Humana are the only Medicare Advantage organizations or MAOs currently in the market, the post-merger HHI would reflect a merger to monopoly.

The merging parties failed to rebut the presumption of anticompetitive effects. They unsuccessfully argued that regulation by the Center for Medicare and Medicaid Services, an office within the Department of Health and Human Services, would prevent the merged firm from increasing its prices or reducing benefits. The merging parties did not contend that the government regulation created antitrust immunity. Instead, the argued that federal regulation of Medicare Advantage leaves "no opening for the anticompetitive effects that the Government posits." The court disagreed.

Proposed fix. The proposed divestiture of certain assets to Molina Healthcare, Inc. offered by the parties to resolve antitrust concerns would not counteract any anticompetitive effects of the merger, in the court’s view. Aetna and Humana each entered into a separate agreement with Molina Healthcare, under which they agreed to sell Molina some of their Medicare Advantage plans if their merger was consummated and if the court decided that the divestiture was necessary to counteract the merger’s anticompetitive effects. The proposed divestiture would have transferred responsibility for approximately 290,000 seniors from Aetna or Humana to Molina, and would include seniors in all 364 complaint counties. The evidence did not show that the divestitures to Molina, primarily a Medicaid company, would counteract the anticompetitive effects of the merger, according to the court. Further, the prospect of other new entrants also did not sway the court.

Public exchanges. The government also challenged the merger between Aetna and Humana on the ground that it might harm competition in the market for individual insurance sold on the public exchanges in 17 counties across three states (Florida, Georgia, and Missouri). Created by the Affordable Care Act, public exchanges are online marketplaces where consumers can purchase health insurance.

In an apparent effort to "improve its litigation position," Aetna announced after the complaint was filed that it would no longer offer plans on the public exchanges in 11 states where it had offered plans in 2016, including those that covered all 17 counties in the complaint. The court noted that the fact that Aetna withdrew from the 17 counties for the 2017 plan year was weak evidence of its future behavior. However, because it was unlikely that the merging firms would compete on the public exchanges in the 14 counties in Missouri and Georgia, there would be no substantial lessening of competition on the public exchanges in the 14 counties in those two states.

Because the court found that Aetna was likely to offer on-exchange plans in Florida after 2017, the court considered the deal's anticompetitive effects in that area. The government "made a very strong prima facie case that the proposed merger may substantially lessen competition in on-exchange health plans in the three complaint counties in Florida, relying on both the presumption based on market competition and on direct evidence of head-to-head competition," the court decided. Aetna and Humana failed to offer evidence of "extraordinary efficiencies" in rebuttal to overcome that presumption.

Antitrust Division reaction. Calling the decision "a victory for American consumers," Brent Snyder, Deputy Assistant Attorney General in charge of the Antitrust Division’s criminal enforcement effort and the current Designated Supervisory Official responsible for overseeing the Antitrust Division, said that the court's ruling stands for the proposition that "competition among Medicare Advantage providers is protected by the antitrust laws."

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